Why Companies Do Not Pursue Attractive Mergers and Acquisitions
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Why Companies Do Not Pursue Attractive Mergers and Acquisitions ...

Chapter 1:  Introduction
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1.2.4.1. Introduction

While the thrust of much of the literature on performance improvement emphasises failure avoidance, arguably, improvement can also be realised by increasing the number of attractive candidates that are acquired. Attractive candidates may not be acquired for a variety of reasons. Many of these, including the following, have received attention in the literature:

  • A candidate may not be for sale or an offer may be rejected (Jemison & Sitkin, 1986a; Puranam et al., 2006).
  • A publicly traded candidate may engage in defensive activities including counterbidding for the acquirer, issuing negative press releases, selling off one or more particularly attractive strategic business units (SBUs) or incorporating antitakeover provisions (“poison pills”) into its corporate charter (Jensen, 1984).
  • A bid may be too low in an auction. Haspeslagh and Jemison suggested establishing a “maximum walk-away price” as part of the justification for an acquisition, recognising that it may be below the bid of a competitor who may be able to add more value to a candidate or to simply overvalue it (1991, p. 50).
  • Legal and regulatory obstacles may arise (Evenett, 2001; Puranam et al., 2006).
  • The general public or the capital markets may react negatively (Haspeslagh & Jemison, 1991; Puranam et al., 2006).
  • The acquirer’s management’s opinion of a candidate may change as a result of the receipt of new information. During the due diligence effort, for example, pending litigation or the prospective loss of critical customers may become apparent (Puranam et al., 2006). Management styles may be incompatible and irreconcilable (Brousseau et al, 2004), or during negotiations, an acquirer may learn that critical employees in the acquisition candidate will leave (Kusewitt, 1985), or some other event may occur or factor become known that will reduce the value of the candidate to the acquirer or increase its risks to an unacceptably high level (Carter, 1971a, Paine & Power, 1984).
    •